Caso says Apple has production targets of 5-6 million units, but believes the iWatch will "essentially replace the iPod in the consumer portion of AAPL's product lineup" and will see lowered iPod sales as a result of customers choosing the iWatch instead. The note says the iPod is not expected to be updated this year.

Earlier this year, Tim Cook said that the iPod "is a declining business". In 2013, the company managed to earn only $5 billion selling its portable music players. That's 3 billion less than in 2008.